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Core Labour Standards and FDI: Friends or Foes? The Case of Child Labour

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Abstract

We test the often-cited hypothesis that high levels of child labour attract foreign investors. Using panel data we show the overall effect which child labour has on foreign direct investment (FDI) to be a (small) negative one. We find strong evidence for the theoretical prediction that child labour deters FDI by slowing down economic development. Weaker evidence is provided for our theoretical prediction that child labour can discourage FDI via its impact on the availability of a skilled labour force in an economy. The data do not indicate that high levels of child labour drive down the factor share of labour, thereby increasing the attractiveness of an economy for foreign investors.

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Authors and Affiliations

  1. School of Business and Economics, Institute for Economic Theory II, Humboldt University of Berlin, Spandauer Straße 1, 10178, Berlin, Germany

    Sebastian Braun

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  1. Sebastian Braun
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Correspondence to Sebastian Braun.

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JEL no.

C33, F23, J82

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Braun, S. Core Labour Standards and FDI: Friends or Foes? The Case of Child Labour. Rev. World Econ. 142, 765–791 (2006). https://doi.org/10.1007/s10290-006-0092-6

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  • DOI: https://doi.org/10.1007/s10290-006-0092-6

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